FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ARIZONA CARTRIDGE 

REMANUFACTURERS ASSOCIATION

INC., an Arizona not-for-profit

corporation, individually, and on No. 03-16987

behalf of its members and the D.C. No.

general public,  CV-01-04626-

Plaintiff-Appellant, SBA/JL

v. OPINION

LEXMARK INTERNATIONAL INC., a

Delaware corporation,

Defendant-Appellee. 

Appeal from the United States District Court

for the Northern District of California

Saundra B. Armstrong, District Judge, Presiding

Argued and Submitted

March 17, 2005—San Francisco, California

Filed August 30, 2005

Before: Sidney R. Thomas and Raymond C. Fisher,

Circuit Judges, and James L. Robart, District Judge.*

Opinion by Judge Fisher

*The Honorable James L. Robart, United States District Judge for the

Western District of Washington, sitting by designation. 

11793
COUNSEL

Ronald S. Katz, Eugene L. Hahm, Manatt, Phelps & Phillips,

LLP, for the plaintiff-appellant. 

J. Thomas Rosch, James L. Day, Richard B. Ulmer Jr.,

Latham & Watkins, for the defendant-appellee. 

11796 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
OPINION

FISHER, Circuit Judge: 

Appellant Arizona Cartridge Remanufacturers Association

(“ACRA”), an association of wholesalers that sell remanufactured printer cartridges, appeals the grant of summary judgment to cartridge-maker Lexmark on claims that Lexmark

engaged in deceptive and unfair business practices in violation of California law. The dispute arises from Lexmark’s

advertising of its “Prebate” program, under which it gives

purchasers an upfront discount in exchange for their agreement to return the empty cartridge to Lexmark for remanufacturing — a form of post-sale restriction on reuse. ACRA

claims that Lexmark’s advertising and promotional materials

mislead customers into thinking the post-sale restriction is

enforceable and that they actually receive a discounted price

for the special cartridges. We agree with the district court that

ACRA has not offered evidence that Lexmark’s advertisements constitute deceptive or unfair business practices and

affirm the grant of summary judgment in favor of Lexmark.

I.

Lexmark, spun off from IBM in 1991, makes and sells laser

printers and toner (printer) cartridges. ACRA represents

wholesalers that remanufacture emptied Lexmark printer cartridges for reuse. Before 1997, Lexmark did not compete

against ACRA’s members because it sold only new replacement printer cartridges. In 1997, however, Lexmark began to

remanufacture its own cartridges and launched an aggressive

new strategy to improve its position in the market for remanufacturing the used cartridges. Most notably, the company

introduced its “Prebate” program — a play on the word “rebate” — which gives consumers an upfront discount on

printer cartridges. The Prebate cartridges cost consumers on

average 30 dollars (or 20 percent) less than a regular carARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11797
tridge. In return, Lexmark requires the consumer to return the

depleted cartridge to Lexmark or its agent. 

The Prebate cartridge package sets forth the following

license agreement on the outside of the package: 

RETURN EMPTY CARTRIDGE TO LEXMARK FOR REMANUFACTURING AND

RECYCLING

Please read before opening. Opening of this package

or using the patented cartridge inside confirms your

acceptance of the following license agreement. The

patented cartridge is sold at a special price subject to

a restriction that it may be used only once. Following

this initial use, you agree to return the empty cartridge only to Lexmark for remanufacturing and

recycling. If you don’t accept these terms, return the

unopened package to your point of purchase. A regular price cartridge without these terms is available1

Consumers can opt to buy Lexmark cartridges without the

Prebate post-sale restriction, but at the higher price.2

1The packaging when the Prebate program was launched in 1997 contained slightly different language: 

IMPORTANT! READ BEFORE OPENING. Opening this

package or using the cartridge inside confirms your acceptance to

the following license agreement. License Agreement: Patent cartridge inside sold subject to Single Use Only restriction. It is a

violation of this agreement and/or it is unlawful to resell, reuse,

refill or remanufacture. If you don’t agree, return unopened

package to point of purchase. 

2According to Lexmark, its post-sale restriction on reusing the Prebate

cartridges does not require consumers to return the cartridge at all; it only

precludes giving the cartridge to another remanufacturer. The plain language of the contract does not clearly reflect this position. However, the

distinction drawn by Lexmark is unnecessary to our resolution of the present case, which is not a direct challenge to the terms of the contract itself.

11798 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
Lexmark asserts that it devised the Prebate program to

boost its competitive position in the remanufacturing market,

to preserve the quality of the product offered consumers and

to be environmentally conscious by recycling used cartridges.

Lexmark advertises the program in packaging, media and on

the company’s Web site. Id. It pays a fee to authorized resellers who collect and return empty cartridges. 

The program has been successful. The company estimates

that 50 percent of the cartridges sold are returned as empty

cartridges to Lexmark, and cartridge returns have increased

by 300 percent since the implementation of the Prebate program. Additionally, from 1997 to 2001, Lexmark’s cartridge

sales in the United States increased by nearly 100 percent and

its sale of printers that use Prebate cartridges increased by 60

percent. 

ACRA filed this diversity action against Lexmark in federal

district court, alleging that several of the company’s statements regarding the terms and benefits associated with purchasing a Prebate cartridge are false and violate California’s

unfair competition laws. Most important for purposes of this

appeal, ACRA argued that Lexmark deceptively suggests that

the conditions placed on the outside of the Prebate package

create an enforceable agreement with consumers to return

used cartridges. ACRA also contended that Lexmark misleads

consumers by falsely promising that they will save money

when purchasing Prebate cartridges, when in fact Lexmark

cannot control the price charged by retailers. Finally, ACRA’s

complaint challenged Lexmark’s use of a so-called “lock-out”

chip as an unfair business practice.3

3The Sixth Circuit described the chip’s functioning as a “secret handshake” between the printer and the chip in each cartridge. Lexmark Int’l

v. Static Control, 387 F.3d 522, 530 (6th Cir. 2004) (addressing copyright

infringement action against rival chip maker). “If the two values do not

match each other, the printer returns an error message and will not operate,

blocking consumers from using toner cartridges that Lexmark has not

authorized.” Id. 

ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11799
The district court concluded that Lexmark’s Prebate program advertising is not deceptively false. Arizona Cartridge

Remanufacturers Ass’n, Inc. v. Lexmark Int’l, Inc., 290 F.

Supp. 2d 1034, 1049 (N.D. Cal. 2003). It found that the company could legally enforce the post-sale restriction under a

Federal Circuit decision allowing patent holders to limit the

use of their products after sale. Id. at 1042-45 (citing Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708 (Fed. Cir.

1992)). The court further found that Lexmark’s restriction

created a valid agreement with consumers and that Lexmark’s

claim of discount pricing accurately reflects its sales practice.

Id. at 1045-46. It also found that ACRA failed to establish

that Lexmark’s use of the lock-out chip amounts to unfair

competition. Id. at 1049-50.

II.

We review the district court’s grant of summary judgment

de novo. Delta Sav. Bank v. United States, 265 F.3d 1017,

1021 (9th Cir. 2001). We must determine, by “viewing the

evidence in the light most favorable to the nonmoving party,

whether there are any genuine issues of material fact and

whether the district court correctly applied the relevant substantive law.” Id.

III.

Although this case involves our consideration of important

questions of patent and contract law, at its core the dispute

between Lexmark and ACRA reduces to state claims of unfair

competition and misleading business practices related to Lexmark’s advertising. The key issue here is whether Lexmark

misleads consumers and engages in unfair competition when

it advertises cartridges for sale at a reduced price but with

restrictions on their use. ACRA sues under two California

laws that provide broad consumer protection for misleading

and unfair practices by businesses. California Business and

Professions Code § 17500 makes it unlawful for a business to

11800 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
disseminate any statement “which is untrue or misleading,

and which is known, or which by the exercise of reasonable

care should be known, to be untrue or misleading. . . .” In

turn, California Business and Professions Code § 17200, et

seq., prohibits “any unlawful, unfair or fraudulent business act

or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by” § 17500.4

 To state a cause

of action under § 17500 for injunctive relief requires a showing that members of the public are likely to be deceived, but

does not call for a showing of “[a]ctual deception or confusion caused by misleading statements.” Day v. AT & T Corp.,

74 Cal. Rptr. 2d 55, 59 (Cal. Ct. App. 1998). The law encompasses not just false statements but those statements “which

may be accurate on some level, but will nonetheless tend to

mislead or deceive. . . . A perfectly true statement couched in

such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under these sections.” Id. at 60. The

plaintiff has the burden of proving that the challenged advertising is false or misleading to a reasonable consumer. Nat’l

Council Against Health Fraud, Inc. v. King Bio Pharm., Inc.,

133 Cal. Rptr. 2d 207, 214 (Cal. Ct. App. 2003). 

4California’s Proposition 64, passed in November 2004, amended the

statute to prohibit unaffected plaintiffs from bringing suit on behalf of the

general public. Cal. Bus. & Prof. Code § 17204. Under this change,

ACRA may lack standing to assert that Lexmark is deceiving consumers

or engaging in unfair competitive practices that harm consumers. However, California courts are split on whether this requirement applies retroactively to cases that have not been fully adjudicated. Compare Bivens v.

Corel Corp., 24 Cal. Rptr. 3d 847 (Cal. Ct. App. 2005) (finding plaintiff

lacked standing because it was not affected), review granted, 110 P.3d

1218 (Cal. 2005), with Californians for Disability Rights v. Mervyn’s,

LLC, 24 Cal. Rptr. 3d 301 (Cal. Ct. App. 2005) (finding the standing

requirement to apply only prospectively), review granted, 110 P.3d 1216

(Cal. 2005). Because we affirm the district court’s grant of summary judgment, we do not address the effect of Proposition 64 on ACRA’s claim,

if any. 

ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11801
“Unfair competition” under § 17200 “means conduct that

threatens an incipient violation of an antitrust law, or violates

the policy or spirit of one of those laws because its effects are

comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” Cel-Tech

Communications, Inc. v. Los Angeles Cellular Tel. Co., 973

P.2d 527, 544 (Cal. 1999). Section 17200 is not limited to

anticompetitive business practices targeted at rivals, “but is

equally directed toward the right of the public to protection

from fraud and deceit,” Comm. On Children’s Television, Inc.

v. Gen. Foods Corp., 673 P.2d 660, 667 (Cal. 1983) (internal

quotation marks and emphasis omitted) (quoting Barquis v.

Merchants Collections Ass’n, 496 P.2d 817, 828 (Cal. 1972)),

and permits “courts to enjoin ongoing wrongful business conduct in whatever context such activity might occur,” id. A

violation of the false advertising law automatically gives rise

to a violation of the unfair competition provision. Id. at 668.

ACRA argues that specific statements made by Lexmark in

conjunction with its Prebate program — offering cheaper cartridges that come with restrictions on their reuse — violate

§§ 17200 and 17500. We address these allegedly offending

statements — the focus of ACRA’s appeal — in turn. 

A. Enforceability of Post-Sale Restriction

ACRA contends that Lexmark engages in false advertising

and unfair competition by telling consumers they have a legal

obligation to honor the post-sale restriction printed on the outside of the cartridge package, when in fact they are not legally

compelled to do so. Under ACRA’s theory, Lexmark cannot

enforce the post-sale conditions and to suggest otherwise violates California’s consumer protection laws. To satisfy its burden on summary judgment, ACRA essentially must show that

Lexmark has no legal basis for the restriction featured in its

advertising. We agree with the district court that ACRA has

failed to make such a showing. 

11802 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
1. Patent Law

[1] The district court found that Lexmark could condition

the use of its patented Prebate cartridges by consumers under

the principle articulated by the Federal Circuit in Mallinckrodt, Inc. v. Medipart, Inc., which held that a restriction on a

patented good is permissible as long as it is “found to be reasonably within the patent grant, i.e., that it relates to subject

matter within the scope of the patent claims.” 976 F.2d at 708.

A condition is impermissible where “the patentee has ventured beyond the patent grant and into behavior having an

anticompetitive effect not justifiable under the rule of reason.”

Id. (remanding for a determination of whether the patentee’s

single-use restriction on its medical device was reasonable

and within the scope of its patent); see also Monsanto Co. v.

McFarling, 302 F.3d 1291, 1298-99 (Fed. Cir. 2002) (upholding infringement injunction against farmer who purchased

patented seeds under an agreement that the seeds be used for

“planting a commercial crop only in a single season,” and

who then replanted the seeds); B. Braun Med., Inc. v. Abbott

Laboratories, 124 F.3d 1419, 1426 (Fed. Cir. 1997) (concluding that although typically “an unconditional sale of a patented device exhausts the patentee’s right to control the

purchaser’s use of the device thereafter,” this does not hold

true where the patentee specifically places restrictions on the

sale of the item). 

Applying the Mallinckrodt principle, the district court

determined that Lexmark imposed an enforceable condition

on the Prebate printer cartridges because Lexmark’s patent

rights were not exhausted. Arizona Cartridge, 290 F. Supp. 2d

at 1045. On appeal, ACRA does not challenge the district

court’s reliance on Mallinckrodt or the validity of the Federal

Circuit’s decision, nor does it argue that Lexmark is acting

beyond the scope of its patent.5 In fact, ACRA concedes that

5The Electronic Frontier Foundation, in its amicus brief, argues that

Mallinckrodt was wrongly decided and urges us to reject explicitly the

ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11803
the otherwise unfettered use of a patented good can be constrained. [Blue Brief at 21]. But to do so, ACRA contends, the

patent holder must have a valid contract with the consumers

of its product. 

2. Contract Law

[2] ACRA thus asks us to conclude that Lexmark lacks a

valid contract with consumers to limit the post-sale use of the

cartridge. California law, adopting the relevant Uniform Commercial Code provisions, establishes that a “contract for sale

of goods may be made in any manner sufficient to show

agreement, including conduct by both parties which recognizes the existence of such a contract.” Cal. Com. Code

§ 2204(1). Additionally, California law provides that an

“agreement sufficient to constitute a contract for sale may be

found even though the moment of its making is undetermined.” Id. at § 2204(2). 

[3] We agree with the district court that Lexmark has presented sufficient unrebutted evidence to show that it has a

facially valid contract with the consumers who buy and open

its cartridges. Specifically, the language on the outside of the

cartridge package specifies the terms under which a consumer

may use the purchased item. The consumer can read the terms

and conditions on the box before deciding whether to accept

them or whether to opt for the non-Prebate cartridges that are

sold without any restrictions. 

The district court found that the ultimate purchasers of the

cartridge — consumers — had notice of the restrictions on

use and had a chance to reject the condition before opening

the clearly marked cartridge container. Arizona Cartridge,

Federal Circuit’s reasoning. However, ACRA has not challenged the district court’s reliance on or application of Mallinckrodt. Thus, we need not

pass on the merits of the Federal Circuit’s decision for resolution of the

case before us. 

11804 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
290 F. Supp. 2d at 1044-45. These findings support the conclusion that the consumer accepts the terms placed on usage

of the Prebate cartridge by opening the box.6

[4] In exchange for agreeing to the restricted use of the cartridge, consumers receive consideration in the form of the

price discount.7 The district court explicitly found that “the

Prebate is offered at a special price that reflects an exchange

for a single-use condition.” Arizona Cartridge, 290 F. Supp.

2d at 1045. ACRA argues that because Lexmark distributes its

cartridges through wholesalers, it has no way to ensure that

consumers actually receive the price discount, but offers no

factual support for this contention. Lexmark presented evidence that market forces compel wholesalers to pass the discount on to consumers. A regional manager of one supplies

retailer said it would be hard, albeit not impossible, for the

wholesaler to skim the discount off as profit for itself by passing on only a portion of the discount from Lexmark to the

consumer. But he said, “in a very competitive wholesale distribution market, there are too many competitors, really, to be

able to do that.” Furthermore, the Prebate notice printed on

6This case is different from those instances in which a consumer lacks

notice of the condition at the time of purchase. See, e.g., Step-Saver Data

Sys. v. Wyse Tech., Inc., 939 F.2d 91, 105 (3d Cir. 1991) (treating box-top

license as an additional term not incorporated into the parties’ contract

where the term’s addition to the contract would materially alter the agreement and the consumer did not see license until after paying for product).

Another variant involves “shrinkwrap licenses” on software, which

impose restrictions that a consumer may discover only after opening and

installing the software. See e.g., ProCD v. Zeidenberg, 86 F.3d 1447,

1452-53 (7th Cir. 1996) (holding that contract included license agreement

terms that appeared on screen even though they came after user had purchased, opened and installed software). 

7Lexmark represents that it has not taken legal action against any user

for failing to return a cartridge to Lexmark because it “assumes customers

will be honest and send cartridges back.” To the extent that Lexmark fails

to enforce its Prebate policy, a consumer receives the benefit of the bargain through the price reduction without necessarily having to carry

through on its obligation to return the cartridges to Lexmark. 

ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11805
the cartridge informs consumers that they can purchase a regular cartridge without the restriction at the regular price; the

notice specifically states that a “regular price cartridge without these terms is available.” ACRA has failed to rebut this

evidence to create a triable issue of fact. 

[5] ACRA’s argument that no enforceable agreement exists

because there is no privity of contract also fails. ACRA cites

a California case stating “the general rule that one may not

sue upon a contract unless he is a party to that contract.” Watson v. Aced, 156 Cal. App. 2d 87, 91 (Cal. Ct. App. 1957).

The privity requirement is met here, because the consumer is

a party to the contract with Lexmark. As described above, the

contract is formed when the final purchaser opens the cartridge box with notice of the restriction on reuse. ACRA contends, however, that the lack of privity is shown by

Lexmark’s inability to ensure that consumers will receive the

price-reduction benefit of the Prebate program. We have

already explained why ACRA has failed to show that consumers do not pay a reduced price. It does not matter that this

price discount results from distributors choosing to pass along

their savings — the consumer still receives consideration for

agreeing to the restriction. 

[6] We hold that the contract on its face appears to be

enforceable based on the district court’s findings that consumers (1) have notice of the condition, (2) have a chance to

reject the contract on that basis and (3) receive consideration

in the form of a reduced price in exchange for the limits

placed on reuse of the cartridge.8 The contract permits Lexmark to restrict the use of its patented item and gives Lexmark a legal basis for asserting its ability to enforce its

restriction. Therefore, ACRA has not raised a triable issue of

fact that Lexmark’s advertising statements as to its Prebate

program are false, mislead or tend to deceive consumers or

8Our holding here does not preclude challenges to the contract that a

customer — which, unlike ACRA, is a party to the contract — could raise.

11806 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK
that they constitute a form of unfair competition. See Day, 63

Cal. Rptr. 2d at 59-60. 

B. Lexmark’s Statements as to Price Reduction

ACRA contends that Lexmark’s advertising is misleading

in promising consumers a price reduction for buying a Prebate

rather than a regular cartridge, because Lexmark cannot guarantee consumers will pay less for a Prebate cartridge. We

have already rejected this argument. See supra Section

III.A.2. 

ACRA further alleges that Lexmark engages in deceptive

advertising and unfair competition by suggesting that the

price difference between Prebate and non-Prebate cartridges

approximates the value of an empty cartridge. According to

ACRA, Lexmark wants consumers to believe that the Prebate

discount reflects the benefit that accrues to Lexmark by getting an empty cartridge back. We agree with the district court

that nothing in the record supports ACRA’s claim. Arizona

Cartridge, 290 F. Supp. 2d at 1047. 

C. Use of the Lock-Out Chip

[7] ACRA argues that Lexmark’s use of the lock-out chip,

which prevents consumers from having their Prebate cartridges remanufactured by a different company, is anticompetitive and is intended to preclude competition in the aftermarket. The district court found ACRA’s claim that the lockout chip is a form of unfair competition to be unsupported by

facts or legal authority, as do we. Id. at 1050. As discussed

above, the district court relied on the Federal Circuit’s Mallinckrodt decision to find that Lexmark could restrict the postsale use of its patented cartridge. ACRA has not challenged

the court’s determination or alleged that Lexmark is acting

beyond the scope of its patent in imposing a condition that it

uses the lock-out chip to enforce. Additionally, ACRA has not

attempted to show that the use of the lock-out chip — even

ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK 11807
if designed to keep other companies from remanufacturing

Prebate cartridges — impermissibly exceeds the patent grant

to produce anticompetitive effects. 

[8] In sum, ACRA has failed to raise a triable issue of fact

as to whether Lexmark’s restriction on the use of its patented

cartridge is valid and, in turn, whether the lock-out chip is a

proper mechanism to ensure compliance with the restriction.

We affirm the district court’s decision on this issue as well.

IV.

We AFFIRM the district court’s grant of summary judgment to Lexmark. 

11808 ARIZONA CARTRIDGE REMANUFACTURERS v. LEXMARK